What is an offset account?

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What is an offset account?

Post by gleeson »

What exactly is an offset account? I was asked by the bank if i want one.
And which is better, a 100% offset account or a partial offset account?

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Otto Dargan
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Re: What is an offset account?

Post by Otto Dargan »

A 100% offset account is a bank account linked to your loan and the bank will only charge interest on the overall balance.

For example if you have a loan of $100,000 and have $10,000 in your offset account then the bank will only charge you interest on $90,000. This is much better than receiving 1% interest on your cheque account and then paying tax on it!

A partial interest offset account is the same as a 100% offset except that the bank doesn't take all of the money in your offset into account. So in the above example your overall balance may be $90,000 however they still charge you interest on $95,000 as they only take half of your savings into account. This is obviously not as good as a 100% offset account. Typically partial offset is used with fixed rate loans.
Otto Dargan
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